Tax Deference Cases–the Rest of the Story in the Interpretation of APA § 706 (11/6/23; 11/8/23)

I susbstantially revised this blog entry because it was not my best writing; I have made it better (I hope), but do not change the trajectory of my original analysis.

As readers of this blog know, the Supreme Court accepted cert in Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.) (“Loper Bright”) to consider the following question in the October 2023 term:

 Whether the Court should overrule Chevron or, at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

Chevron is common shorthand for Chevron deference, named after Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). Chevron deference as interpreted (it's all about interpretation) deploys a two step framework before deference may be invoked at Chevron Step Two. Chevron is a hot-button issue for those who fear and/or hate (admitting some possibility to deploy fear and hate at the same time) of the administrative state and libertarians and a broad ragtag group of fellow travelers which, when lumped together, I call deference deniers.

Since the grant of certiorari in Loper Bright, the Court has accepted certiorari in Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here ) where the question presented is the same as in Loper Bright. The Court took unusual steps in accelerating cert action on Relentless and even in accepting cert in a carbon copy case to Loper Bright. The speculation is that, given a recusal of one Justice (Jackson) in Loper Bright, accepting cert in Relentless for consideration of the same legal issue on the same relevant facts at the same time would permit the Supreme Court to have a full nine Justice opinion or opinions on the issue for cert. On October 27, 2023, the Court ordered that Amicus Briefs in Loper Bright will be considered in Relentless. (There may be some opportunity for persons who were not amicus in Loper Bright or their attorneys with prudence to file amicus briefs in Relentless, and with the change in Supreme Court rules to permit amicus brief without parties' consents or motion; As with the Amicus Briefs in Loper Bright, the real targets of the Amicus Briefs may not be Supreme Court Justices but rather some amorphous (at least hidden from view0 group with deep pockets to whom they can market themselves for the old-fashioned reason to ultimately, they hope, make money.)

I don’t speculate about what certiorari means other than the Court will consider the question presented unless the court finds a way not to consider the merits issue or narrowly focus on some unimportant issue within the scope of Chevron (a not uncommon dodge for the Supreme Court when a more direct solution would be to DIG the case when it does not want to or can't offer any wisdom that is wise (t least when it can discern that is all it has to offer). I cannot predict any outcome, except that, if the merits, if any, are reached, the pinion(s) may speak to the continuing existence of Chevron deference (perhaps a refinement or limitation as in Kisor.) 

I have just finished drafting an article currently titled Tax Deference Cases–the Rest of the Story in the Interpretation of APA § 706. I sent the draft article to a friend who graciously agreed to read it and offer suggestions.

My article explores the claims made by UVA Law Professor Aditya Bamzai in his article titled: The Origins of Judicial Deference to Executive Interpretation, 126 Yale L.J. 908 (2017), here. As relevant to my article, Professor Bamzai’s claims, highly summarized, are that given the milieu of the Supreme Court cases prior to enactment of the APA in 1946, the state of deference at enactment of the APA was that the APA the in relevant part verbatim text of  706 cannot be read as authorizing a broad form of deference such as in its current iteration is called Chevron deference. Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). (I do not suggest that deference to agency statutory interpretations ever had material features other than those in Chevron—ambiguity in the statute and a reasonable agency interpretation within the scope of the ambiguity.)

Professor Bamzai’s article is said to be “the most important historical argument against Chevron and administrative deference in more than fifty Years.” E.g., Craig Green, Chevron Debates and the Constitutional Transformation of Administrative Law, 88 Geo. Wash. L. Rev. 654, 679 (2020), here,

In my article, I assess Professor Bamzai’s claims and find them wanting. I initially read Professor Bamzai’s article, probably soon after it was published in 2017. I found it on quick read scholarly (at least to the extent that I could discern scholarship on a quick read). I was impressed, but something gnawed at me. Where was the (or, at least a) discussion of tax deference cases and authorities prior to 1946 articulating robust deference in the same form as Chevron (albeit without the nonessential “two-step” Framework articulated after Chevron as its holding)? My article addresses that question by bringing the robust tax authorities into the discussion.

Those tax cases and authorities and the trajectory of the APA from the 1940s forward demonstrate that the framers of the enacted APA understood deference and the words used to permit deference as the best interpretation of in § 10(e), Scope of Review [Current § 706]. Interpreting § 706 to permit or even require deference does not require any particular form of deference within its key historical deference predicates—ambiguity and reasonable interpretation within the scope of ambiguity; further, APA § 10(e) [current § 706] was a restatement of the then current law which included robust deference. That means § 706 permits the Supreme Court to refine and apply deference in its wisdom. This would be a form of judicial common law that, except for constraints of stare decisis, can continue to reshape deference as the Court deems appropriate. 

Basically, and in high summary, I show that at the enactment of the APA in 1946, Supreme Court statements of deference to agency interpretations were far more robust than Professor Bamzai claims, particularly the tax cases which Professor Bamzai ignores. The article steps chronologically through those cases and authorities leading up to the APA. My chronological development of the cases and authorities focuses particularly on the:

• Final Report of the Attorney General's Committee on Administrative Procedure, S. Doc. 77-8, (1941) ("AG Comm Final Report 1941") became the formative document underlying the APA and thus treated as legislative history; and
• Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944) which, when read carefully and contextually, contributes greatly to the discussion. Dobson adds several key points, but perhaps the key point that has drawn little attention is that Dobson involved appellate review of Tax Court legal interpretations (although the Court seems to have flirted with some notion that legal interpretations were factual conclusions, which is a red herring to this discussion). Dobson stated two key propositions for present purposes.  The statute governing judicial review permitted only limited review of Tax Court interpretations of law The statute permitted review only to determine whether the interpretation was “not in accordance with law,” otherwise the Tax Court interpretations were to be sustained. (IRC 39 §1141(c).) As interpreted in Dobson, those words mean de novo review without deference for “clear-cut questions of law” to identify those interpretations that are “not in accordance with law” (the statutory review standard it applied). I show that, in current deference lingo, that standard permits deference to agency interpretations ambiguous statutory text. Justice Jackson held that there would be de novo judicial review for “clear-cut questions of law”  but judicial review with deference for questions of law that were not clear-cut. I show in the article that that standard is in all material respects the Chevron standard As the Court had invoked deference to agency interpretations before Dobson, before the APA, after the APA, and after Chevron.

At the time Dobson was rendered in 1943, Dobson was a big-deal and was much commoted on (see use of this term at the end of this blog entry) in the legal community of both tax lawyers and administrative lawyers. The aspects commoted on include —(i) that the Tax Court was an agency subject to whatever rules may apply to agencies (as modified as appropriate for its role as a judicial tribunal); and (ii) that the specific statutory limit on appelllate court review of Tax Court legal interpretations--“not in accordance with law”--conferred authority only for courts to review de novo without deference to agency “clear-cut” interpretations of law but to require deference to agency statutory interpretations that were not clear cut interpretations of the statutes. (Dobson was later statutorily overruled by requiring judicial review of the Tax Court the same as for district courts. (Some drama there as well.))

Then, we turn to the perceived need for a long time pre-APA to have a statute governing administrative procedure. There was a long history of such consideration. The relevant history for present purposes includes AG Comm Final Report 1941. Toward the end of the war, the ABA first proposed a draft APA based on the Minority Recommendation in the AG Comm Final Report 1941; that draft with some     revisions was then, in 1945 introduced into both Houses, with the lead in congressional consideration taken by the Senate, although both Houses through Committees gave robust consideration of the text.

Focusing on the AG Comm Final Report  1941, the Committee itself was a blue-ribbon committee of administrative law experts who were giants in the general field of administrative law. The Committee was tasked with a deep study of administrative law (including the procedures and needs of the various agencies) and proposing appropriate legislation. The Majority summarized broad form deference to agency interpretations of statutes that were amibiguous and were reasonable interpretations withint the scope of the ambiguities. (This understanding of the statute of deference reported in the Final Report is one of the differences I have with Professor Bamzai who claims that the Final Report described deference as far less robust than it actually described deference.) The Committee Majority avoided proposing legislation on deference within the scope of review because it felt current law (Supreme Court opinions) was sufficient. The Minority felt a scope of review provision stating current law including deference was appropriate and proposed legislation the following specific language in the Minotaty Recommendations: § 10(e), titled "Scope of review" :

The Minority recommended legislation ("Minority Recommendation") that, in its Scope of Review,  included language authorizing deference explicitly.

*** Provided, however, That upon such review due weight shall be accorded the experience, technical competence, specialized knowledge, and legislative policy of the agency involved as well as the discretionary authority conferred upon it. ***

The Minority felt that its scope of review provision, including deference, simply stating then current law which the Final Report had robustly described.

The second key development occurred when parallel APA bills (initially based on the Minority Recommendation in large part but having passed through the ABA and finally introduced in 1945 in both houses). The scope of review provision, § 10(e), had the following features:

• Did not include The “Provided However” specific authority for deference.
• Did include a new judicial authority to hold unlawful and set aside agency actions (including interpretations of law "not in accordance with law." § 10(e)(B)(1).

To remind, in Dobson  decided just 2 years before, the Court had definitively interpreted those words in IRC 39 § 1141(c)--“not in accordance with law"-- to permit de novo review only for "clear cut" legal interpretations but not for legal interpretations that were not clear cut. I argue that, by adopting the same language in § 10(e), it could be argued that Congress adopted that interpretation of the words it used. I do not support my argument with specific authority in the legislative history because I found. The possibilities of the precise language appearing in § 10(e)(B)(1) dealing with the same subject as scope of review are truly not likely. I think the only fair assumption is that the drafters of that final APA phrasing did not create the words ex nihilo. However persuasive you think that is, I would say that, at a minimum, the words did not compel de novo review without deference, with any uncertainty like to mean deference. It is almost certain that Congress used the words in § 10(e)(B)(1) in a way that was not inconsistent with Dobson's interpretation or, in risk language, assumed the risk of that interpretation.

I start from the Premise that the Final Report Majority and Minority knew and wanted deference whether as a feature of law implicitly brought forward in the Majority's Recommendation or as a specific statutory feature of the Minority Recommendation.  For present purposes, it is important that Carl McFarland was a believer in deference as a feature of the APA that should go forward. McFarland was likely the principal draftsman of the scope of review provision of the Minority Recommendation, was the principal mover of the ABA draft recommendation (where he served as President and Committee Member and Chair of the ABA Committee drafting the ABA proposal), and the principal noncongressional mover in explaining the draft legislation through the process to final enactment. I surmise that those who understood plain English and the development of the law (including Dobson) knew that the words "not in accordance with law" included deference. It is therefore not surprising that, when the "Provided however" language, which had never been interpreted by the courts, was excluded and the "not in accordance with law" was included, the more expert of these cooks in the kitchen knew exactly what it meant.

Since the APA enactment in 1946, few serious observers have since questioned whether deference is appropriate (subject to such limitations on deference the Supreme Court imposes from time to time.

There is lot more to that story, and I roam around it in the article.

I will just say that, as with its rambling arounds in tax issues, the Supreme Court can certainly screw this area of law up if given the opportunity to do so.

This makes me think of a great Justice Jackson quote: “We are not final because we are infallible, but we are infallible only because we are final.”). Brown v. Allen, 344 U.S. 443, 540 (1953) (Jackson, J., concurring). Then even with that level of finality, the Supreme Court has indicated a propensity to unsettle settled issues. Those who join me in this journey I have taken should come to appreciate Justice Jackson's motivations. (Justice Jackson has some other good quotes generally relevant to the issue: 

• Jackson complained of "[s]ome of the complexity, conflict and confusion in the tax law, *** due to the number of cooks who make the broth." He included in those cooks, I suspect, both inexpert congressmen and inexpert judges: and 
• Jackson complained (by hyperbole or tongue in cheek) that Americans insisted on: "no taxation without litigation,"

Finally, readers of this blog on a theme such as “where are the tax cases” can benefit on the background Justice Jackson brought to the table in Dobson, where he obtained unanimous agreement of the other Justices. Justice Jackson did not consider himself a tax lawyer in any type of planning sense or systemic sense. But he was a litigator keenly interested in litigation that can be counterproductive to the needs of a civilized society unless managed correctly. He had served in his short time in government as 

• Chief Counsel of the IRS where he advised on tax law and managed the IRS’s trial lawyers in the Board of Tax Appeals (“BTA” with the name changed to Tax Court in 1942; for the critical part of this article, in 1942, the BTA’s name had been changed to Tax Court). As Chief Counsel, Jackson actually tried at least one prominent tax case.
• Assistant Attorney General for the Tax Division, managing the Government’s tax trial in all courts except the Tax Court.
• Solicitor General (“SG”) of the U.S. managing and sometimes arguing Government cases in the Supreme Court. In addition, the SG had to approve Government petitions for certiorari and all Government appeals to courts of appeals in tax cases from trial courts (including the Tax Court).

He thought our system of tax litigation was a mess. Inherent in Justice Jackson's framing of Dobson was that the Tax Court judges were systemically the judicial experts best qualified to interpret the tax law, and certainly by their constant immersion in tax law were better qualified to get it right than a smattering of judges rarely having dockets requiring tax expertise impracticable for jacks of all trades. A simple extension of that concept, as inherent in his rumination, was that agencies too had expertise that was systemically ignored with de novo interpretations of law in many courts (including separate district courts all around the country, the Court of Federal Claims, and a smattering of other judicial bodies that could offer their opinions on tax interpretation). In short, Justice Jackson wanted those with tax expertise to be the loudest, most persuasive, voices, respected unless clearly contrary to law. (That's deference.)

I think that is why Justice Jackson reached for and found deference in Dobson so that the uncertain questions of law would be decided by those who, by the roles they served, were likely to be the best interpreters of uncertain text rather than a ragtag bunch of disparate judges.

Finally, I copy and paste below the table of contents from the current draft of the article (I have not taken the trouble of cleaning up the visual presentation of the TOC since the contents are legible enough for octogenarian work):

 

TABLE OF CONTENTS

I.              Introduction..............................................................................

A.                     Really, Another Article on Chevron Deference?

B.                     Professor Bamzai (UVA Law)...........................

C.                     My Goal for Another Article on Deference......

 

II.            Statutory Text – APA § 706 and § 701................................

A.                     § 706 Scope of Review.........................................

B.                     Exclusions............................................................

1.                     § 701(a) - By Statute or Law....................

2.                     § 706(2)(A) “not in accordance with law.”

 

III.           Background Matters..............................................................

B.                     Definitions...........................................................

1.                     Deference Is:..............................................

a.                     Adopting the Agency Reasonable But “Not Best” Interpretation............................................

b.                     The Reasonable “Not Best” Agency Interpretation............................................

c.                      Deference Allows Agency Discretion in the Reasonable Interpretation Space to Adopt a Reasonable Not Best Interpretation.......

2.                     Deference Is Not:.......................................

a.                     Adopting the Agency Best Interpretation.   

b.                     Interpretive Equipoise....................

c.                      Skidmore Respect (Not Deference).

C.                     Other Deference Confusions..............................

1.                     Textualism.................................................

2.                     De Novo Review of Statutes the Agency Interpreted.         

a.                     De Novo Judicial Review without Deference.         

b.                     De Novo Judicial Review with Deference.    

3.                     Deference Applies Only to Statutory Interpretations.          

 

IV.           Professor Bamzai’s Claim of Pre-APA Deference..............

A.                     Limited Deference Before 1941.........................

1.                     Bamzai’s Claim..........................................

2.                     The State of Deference in 1940...............

a.                     Final Report AG Committee on APA

(1)                    Bamzai’s Claim of Thin Support for Deference..........................................

(2)                    AG Comm Final Report 1941 Deference Authority in Majority Discussion..

(a)                    Authorities Cited in Committee Discussion..................................

(b)                    SEC v . Associated Gas & Electric Co., 99 F.2d795, 798 (2d Cir. 1938 ..........

(c)                    Fawcus Machine Co. v. United States, 282 U.S. 375 (1931)...........................

(d)                    Brewster v. Gage, 280 U.S. 327 (1930).
       

(6)                    Conclusion on AG Comm Final Report 1941.

B.                     Expanded Deference 1940 to Enactment of APA 1946.
         

1.                     Professor Bamzai’s Claim of Expanded Deference.         

2.                     Dobson – A 1943 Tax Agency Deference Case.     

3.                     Dobson–Devil in the Details....................

a.                     Dobson was a Deference Holding..

b.                     Dobson Categories - Law Interpretations - “Clear-Cut” and “Not Clear-Cut”.............

(1)                    The Categories...................

(2)                    Deference Consequences of Dobson’s Categories................................

c.                      Table Comparing Dobson Deference and Chevron Deference..................................

4.                     Professor Dickinson’s 1947 Claim about Dobson.
         

C.                     The 1944 ABA Proposed APA.........................

D.                    Statements of Deference in 1945....................

E.                     Congressional Consideration of the APA 1945-1946.
         

1.                     Introduction.............................................

2.                     Initial House and Senate Bills in 1945.

3.                     Senate Consideration of S. 7..................

4.                     Other Congressional Consideration.....

F.                     Dobson and the Text of the APA....................

G.                    Professor Dickinson’s Claim 1947..................

H.                    Attorney General Manual on APA 1947........

I.                      Dobson Was Not Overruled by APA § 706; Statutory Amendment Required................................................

J.                     Post APA Interpretation of § 706 Scope of Review.         

K.                    Tax Authority After the APA..........................

1.                     Introduction.............................................

2.                     United States v. Correll.........................

3.                     National Muffler v. United States. ......

4.                     Mayo Foundation....................................

 

V.             Conclusions...........................................................................

 

Appendix - Chronological Development of APA § 10(e) [§  706].......

I.              As originally proposed by the Minority in the AG Final Report 1941, Additional Views of and Recommendations of Messrs. McFarland, Stason, and Vanderbilt 246-247 (Presented in section titled  “Additional Views of Messrs. McFarland, Stason and Vanderbilt 203).
         

II.            Administrative Procedure Act as offered in 1945 House and Senate Bills in § 9, titled “Judicial Review”:...........................................

III.           Administrative Procedure Act as passed in 1946 in § 10 titled “Judicial Review”:..........................................................................

Use of term "commoted on" in discussion about Dobson. Dobson leashed a firestorm in the legal community. I discuss that in more detail in the article, Still, I have perhaps stretched the concept to not only commotion from Dobson, but a concept of commoting as an active verb for those who commote.